diff --git a/packages/playwright/src/common/config.ts b/packages/playwright/src/common/config.ts
index 4b6c466cd41e7..6c59da49171be 100644
--- a/packages/playwright/src/common/config.ts
+++ b/packages/playwright/src/common/config.ts
@@ -253,7 +253,7 @@ function resolveWorkers(workers: string | number): number {
 }
 
 function resolveProjectDependencies(projects: FullProjectInternal[]) {
-  const teardownSet = new Set<FullProjectInternal>();
+  const teardownToSetups = new Map<FullProjectInternal, FullProjectInternal[]>();
   for (const project of projects) {
     for (const dependencyName of project.project.dependencies) {
       const dependencies = projects.filter(p => p.project.name === dependencyName);
@@ -271,17 +271,27 @@ function resolveProjectDependencies(projects: FullProjectInternal[]) {
         throw new Error(`Project teardowns should have unique names, reading ${project.project.teardown}`);
       const teardown = teardowns[0];
       project.teardown = teardown;
-      teardownSet.add(teardown);
+      const setups = teardownToSetups.get(teardown) || [];
+      setups.push(project);
+      teardownToSetups.set(teardown, setups);
     }
   }
-  for (const teardown of teardownSet) {
+  for (const [teardown] of teardownToSetups) {
     if (teardown.deps.length)
       throw new Error(`Teardown project ${teardown.project.name} must not have dependencies`);
   }
+
   for (const project of projects) {
     for (const dep of project.deps) {
-      if (teardownSet.has(dep))
-        throw new Error(`Project ${project.project.name} must not depend on a teardown project ${dep.project.name}`);
+      if (!teardownToSetups.has(dep))
+        continue;
+      const closure = buildDependentProjects([...teardownToSetups.get(dep)!], projects);
+      for (const otherDep of project.deps) {
+        if (teardownToSetups.has(otherDep))
+          continue;
+        if (closure.has(otherDep))
+          throw new Error(`Project "${project.project.name}" depends on "${otherDep.project.name}" and on teardown project "${dep.project.name}" which creates a circular dependency. Remove one of the dependencies to fix the problem.`);
+      }
     }
   }
 }
@@ -316,3 +326,28 @@ const configInternalSymbol = Symbol('configInternalSymbol');
 export function getProjectId(project: FullProject): string {
   return (project as any).__projectId!;
 }
+
+export function buildDependentProjects(forProjects: FullProjectInternal[], projects: FullProjectInternal[]): Set<FullProjectInternal> {
+  const reverseDeps = new Map<FullProjectInternal, Set<FullProjectInternal>>(projects.map(p => ([p, new Set()])));
+  for (const project of projects) {
+    for (const dep of project.deps)
+      reverseDeps.get(dep)!.add(project);
+  }
+  const result = new Set<FullProjectInternal>();
+  const visit = (depth: number, project: FullProjectInternal) => {
+    if (depth > 100) {
+      const error = new Error('Circular dependency detected between projects.');
+      error.stack = '';
+      throw error;
+    }
+    result.add(project);
+    for (const reverseDep of reverseDeps.get(project)!)
+      visit(depth + 1, reverseDep);
+    // Teadrdown project may have reverse dependencies, we ignore them here.
+    if (project.teardown)
+      result.add(project.teardown);
+  };
+  for (const forProject of forProjects)
+    visit(0, forProject);
+  return result;
+}
diff --git a/packages/playwright/src/runner/projectUtils.ts b/packages/playwright/src/runner/projectUtils.ts
index 3ad639a9955ce..4e1d87bfecfb8 100644
--- a/packages/playwright/src/runner/projectUtils.ts
+++ b/packages/playwright/src/runner/projectUtils.ts
@@ -120,30 +120,6 @@ export function findTopLevelProjects(config: FullConfigInternal): FullProjectInt
   return [...closure].filter(entry => entry[1] === 'top-level').map(entry => entry[0]);
 }
 
-export function buildDependentProjects(forProjects: FullProjectInternal[], projects: FullProjectInternal[]): Set<FullProjectInternal> {
-  const reverseDeps = new Map<FullProjectInternal, FullProjectInternal[]>(projects.map(p => ([p, []])));
-  for (const project of projects) {
-    for (const dep of project.deps)
-      reverseDeps.get(dep)!.push(project);
-  }
-  const result = new Set<FullProjectInternal>();
-  const visit = (depth: number, project: FullProjectInternal) => {
-    if (depth > 100) {
-      const error = new Error('Circular dependency detected between projects.');
-      error.stack = '';
-      throw error;
-    }
-    result.add(project);
-    for (const reverseDep of reverseDeps.get(project)!)
-      visit(depth + 1, reverseDep);
-    if (project.teardown)
-      visit(depth + 1, project.teardown);
-  };
-  for (const forProject of forProjects)
-    visit(0, forProject);
-  return result;
-}
-
 export async function collectFilesForProject(project: FullProjectInternal, fsCache = new Map<string, string[]>()): Promise<string[]> {
   const extensions = new Set(['.js', '.ts', '.mjs', '.mts', '.cjs', '.cts', '.jsx', '.tsx', '.mjsx', '.mtsx', '.cjsx', '.ctsx']);
   const testFileExtension = (file: string) => extensions.has(path.extname(file));
diff --git a/packages/playwright/src/runner/tasks.ts b/packages/playwright/src/runner/tasks.ts
index 96cadb02d923b..00c2a84f38084 100644
--- a/packages/playwright/src/runner/tasks.ts
+++ b/packages/playwright/src/runner/tasks.ts
@@ -24,7 +24,8 @@ import { debug } from 'playwright-core/lib/utilsBundle';
 import { Dispatcher  } from './dispatcher';
 import { FailureTracker } from './failureTracker';
 import { collectProjectsAndTestFiles, createRootSuite, loadFileSuites, loadGlobalHook, loadTestList } from './loadUtils';
-import { buildDependentProjects, buildTeardownToSetupsMap, filterProjects } from './projectUtils';
+import { buildTeardownToSetupsMap, filterProjects } from './projectUtils';
+import { buildDependentProjects } from '../common/config';
 import { applySuggestedRebaselines, clearSuggestedRebaselines } from './rebase';
 import { TaskRunner } from './taskRunner';
 import { detectChangedTestFiles } from './vcs';
@@ -361,6 +362,9 @@ function createPhasesTask(): Task<TestRun> {
         }
       }
 
+      if (processed.size !== projectToSuite.size)
+        throw new Error(`Circular dependency detected between projects: ${[...projectToSuite.keys()].filter(p => !processed.has(p)).map(p => p.project.name).join(', ')}`);
+
       testRun.config.config.metadata.actualWorkers = Math.min(testRun.config.config.workers, maxConcurrentTestGroups);
     },
   };
diff --git a/tests/playwright-test/deps.spec.ts b/tests/playwright-test/deps.spec.ts
index 26417bd7bc9b0..546a45ac878ef 100644
--- a/tests/playwright-test/deps.spec.ts
+++ b/tests/playwright-test/deps.spec.ts
@@ -503,7 +503,7 @@ test('should run teardown after failure', async ({ runInlineTest }) => {
   expect(result.outputLines).toEqual(['A', 'D']);
 });
 
-test('should complain about teardown being a dependency', async ({ runInlineTest }) => {
+test('should allow dependency on a teardown project', async ({ runInlineTest }) => {
   const result = await runInlineTest({
     'playwright.config.ts': `
       module.exports = {
@@ -515,11 +515,59 @@ test('should complain about teardown being a dependency', async ({ runInlineTest
       };`,
     'test.spec.ts': `
       import { test, expect } from '@playwright/test';
-      test('test', () => {});
+      test('test', async ({}, testInfo) => {
+        console.log('\\n%%' + testInfo.project.name);
+      });
     `,
-  });
+  }, { workers: 1 });
+  expect(result.exitCode).toBe(0);
+  expect(result.passed).toBe(3);
+  expect(result.outputLines).toEqual(['A', 'B', 'C']);
+});
+
+test('should allow dependency on a multipleteardown project', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright.config.ts': `
+      module.exports = {
+        projects: [
+          { name: 'A', teardown: 'A_teardown' },
+          { name: 'B', dependencies: ['A'], teardown: 'B_teardown' },
+          { name: 'A_teardown' },
+          { name: 'B_teardown' },
+          { name: 'C', dependencies: ['A_teardown', 'B_teardown'] },
+        ],
+      };`,
+    'test.spec.ts': `
+      import { test, expect } from '@playwright/test';
+      test('test', async ({}, testInfo) => {
+        console.log('\\n%%' + testInfo.project.name);
+      });
+    `,
+  }, { workers: 1 });
+  expect(result.exitCode).toBe(0);
+  expect(result.passed).toBe(5);
+  expect(result.outputLines).toEqual(['A', 'B', 'B_teardown', 'A_teardown', 'C']);
+});
+
+test('should complain about dependency on a project and its teardown', async ({ runInlineTest }) => {
+  const result = await runInlineTest({
+    'playwright.config.ts': `
+      module.exports = {
+        projects: [
+          { name: 'A', teardown: 'B' },
+          { name: 'B' },
+          { name: 'C', dependencies: [ 'A', 'B'] },
+        ],
+      };`,
+    'test.spec.ts': `
+      import { test, expect } from '@playwright/test';
+      test('test', async ({}, testInfo) => {
+        console.log('\\n%%' + testInfo.project.name);
+      });
+    `,
+  }, { workers: 1 });
   expect(result.exitCode).toBe(1);
-  expect(result.output).toContain(`Project C must not depend on a teardown project B`);
+  expect(result.output).toContain(`Error: Project "C" depends on "A" and on teardown project "B" which creates a circular dependency. Remove one of the dependencies to fix the problem.`);
 });
 
 test('should complain about teardown having a dependency', async ({ runInlineTest }) => {